What Is a Stock?
A stock is a slice of ownership in a company: a claim on its future profits and leftover assets, with limited liability. Here is what that means in practice, with real arithmetic.
Read the explainer →Stocks, explained honestly
How does the stock market actually work?
A plain-English reference for people who want to understand stocks from the ground up: what a share is, how prices are set, how funds and brokers work, how to read a company's numbers, and how taxes work in the US and Canada. We explain how it works. We don't pick stocks, and we won't pretend it's a shortcut to getting rich.
Start here
A path through the fundamentals
New to stocks? Read these in order. Each one builds on the last.
How the Stock Market Works
The stock market is a network of exchanges and trading venues where shares change hands. How the NYSE, Nasdaq, and TSX work, who trades, and what happens to your order.
Read the explainer →How Stock Prices Are Set
A stock's price is set by the last trade between a buyer and a seller in the order book. How bids, asks, auctions, and news move prices, with a worked order-book example.
Read the explainer →How IPOs Work
An IPO is a company's first sale of shares to the public. How underwriters, book building, lock-ups, direct listings, and SPACs work in the US and Canada, with the arithmetic.
Read the explainer →How Dividends Work
A dividend is a cash payment from a company to its shareholders. How the declaration, ex-dividend, record, and payment dates work under T+1, why the price drops, yield, and DRIPs.
Read the explainer →Stock Splits and Buybacks
Why a stock split changes the number of shares but not the value of the company, how reverse splits work, and how share buybacks compare with dividends, with the EPS arithmetic.
Read the explainer →What Is a Stock Index?
A stock index tracks a basket of stocks with one number. How the S&P 500, Dow, Nasdaq, and S&P/TSX Composite are built, and why cap-weighted and price-weighted indexes differ.
Read the explainer →Common vs Preferred Shares
Common shares carry votes and the residual claim on profits; preferred shares trade upside for a fixed dividend and priority. Dual-class shares, rate resets, and liquidation order explained.
Read the explainer →Bull and Bear Markets
A bear market is a fall of 20% or more from a peak; a bull market is a rise of 20% or more from a low. Every S&P 500 bear since 1929, how deep it went, and how long recovery took.
Read the explainer →Stocks vs Bonds
Stocks are ownership; bonds are loans. How equity and debt differ in payments, priority, risk, and long-run returns, with US data from 1928 to 2025 and why most portfolios hold both.
Read the explainer →Investing
How most people actually own stocks
Index funds, ETFs, compounding and fees: the tools behind nearly every retirement account, and what each one costs.
How Index Funds Work
How an index fund copies a stock index, why it rarely needs to trade, what tracking error means, and why index funds cost so little to run.
Read the explainer →ETFs vs Mutual Funds: How They Differ
How ETFs and mutual funds are bought, priced and taxed, how ETF creation and redemption works, and what MERs and trailing commissions mean in Canada.
Read the explainer →How Compound Growth Works
The arithmetic of compounding with real numbers: why growth accelerates, the rule of 72, regular contributions, and the difference between nominal and real returns.
Read the explainer →Trading & brokers
What happens when you click buy
Order types, spreads, settlement, and how "commission-free" brokers still make money.
How to Buy a Stock: Accounts, Orders, and What Happens After You Click Buy
A step-by-step explanation of buying your first share: choosing an account, funding it, placing an order, fractional shares, and the protections and costs to know about.
Read the explainer →Stock Order Types: Market, Limit, Stop, Stop-Limit, and Trailing Stop Orders
What each stock order type actually instructs your broker to do, with worked examples, time-in-force options, and the ways each one can go wrong.
Read the explainer →How Stock Brokers Make Money, Including on "Commission-Free" Trades
Payment for order flow, interest on your cash, margin loans, securities lending, commissions, and currency fees: how brokers earn revenue in the US and Canada, with the rules that apply.
Read the explainer →Analysis
Reading a company by its numbers
The three financial statements, P/E ratios, earnings reports and valuation, explained so the headlines make sense.
How to Read an Income Statement
A line-by-line walk from revenue to net income using Apple's fiscal 2025 10-K, with the margin arithmetic and the traps that make a profit figure misleading.
Read the explainer →Price-to-Earnings Ratio Explained: Trailing, Forward and CAPE
What the P/E ratio measures, how trailing and forward P/E differ, why P/Es vary by sector, and what Robert Shiller's CAPE data does and does not tell you.
Read the explainer →How to Value a Stock: Multiples, DCF and Why Every Answer Is a Range
The two main ways to value a stock, valuation multiples and discounted cash flow, with a fully worked DCF, a sensitivity table, and why small assumptions move the answer.
Read the explainer →Risk
What can go wrong
Crashes, single-company risk, scams, and our own worst habits, with the history and the numbers.
Stock Market Risks Explained Honestly
The real risks of owning stocks: market falls, single-stock and concentration risk, inflation, sequence of returns, liquidity, and currency risk for Canadians holding US shares.
Read the explainer →Stock Market Crashes in History: 1929, 1987, 2000, 2008, and 2020
The five crashes every investor should know: how far the market fell, how long recovery took, what caused each one, and what changed afterwards.
Read the explainer →Common Stock Market Scams and How to Spot Them
How pump and dumps, social-media stock tips, fake advisers, Ponzi schemes, and impersonation scams work, with the warning signs SEC and CSA regulators flag.
Read the explainer →Accounts & taxes
What the taxman sees
How stocks are taxed, and which accounts shelter them, in the United States and Canada. Education, not tax advice.
How Stocks Are Taxed in the US: A Plain-English Guide
How the IRS taxes stocks: short vs long-term capital gains, 2026 brackets, qualified dividends, the 3.8% NIIT, cost basis, and Form 1099-B, with worked examples.
Read the explainer →How Stocks Are Taxed in Canada: A Plain-English Guide
How the CRA taxes stocks: the 50% capital gains inclusion rate, adjusted cost base averaging, the dividend tax credit, Schedule 3, and US withholding on US shares.
Read the explainer →Canadian Registered Accounts Explained: TFSA, RRSP, FHSA, and RESP
How TFSAs, RRSPs, FHSAs, and RESPs work in Canada: 2026 limits, how contribution room builds, withdrawals, and why US dividends are taxed in a TFSA but not an RRSP.
Read the explainer →Quick answers
Common questions
- How does the stock market work, in one paragraph?
- A stock is a share of ownership in a company. Companies sell shares to raise money, and after that the shares trade between investors on exchanges such as the NYSE, Nasdaq, and the Toronto Stock Exchange. Each trade happens when a buyer and a seller agree on a price, so the price moves as investors change their view of what the company will earn in the future. Your broker sends your orders to the market and holds the shares in your name.
- What do I actually own when I buy a share?
- A small fraction of a company: a claim on its future profits (paid as dividends or reinvested in the business), usually a vote at shareholder meetings, and a claim on what is left if the company is wound up after everyone it owes is paid. Your liability is limited to what you paid, so you can lose your investment but not more.
- Why do stock prices go up and down?
- Because the price is just the last price at which someone was willing to buy and someone else was willing to sell. When news changes what investors expect a company to earn, or how much they are willing to pay for those earnings, buyers and sellers adjust their orders and the price moves to wherever they meet.
- What is the difference between a stock and an index fund?
- A stock is one company. An index fund holds every company in an index, such as the 500 in the S&P 500, in proportion to their size, so one company failing has only a small effect. Most long-term investors own stocks through funds rather than picking individual companies.
- Do I pay tax on stocks?
- Usually, yes, unless they are inside a tax-sheltered account. In the United States, selling at a profit creates a capital gain, taxed at lower rates if you held for more than a year, and dividends are taxed as income. In Canada, half of a capital gain is taxable and Canadian dividends get a dividend tax credit. Accounts such as a 401(k), IRA, TFSA, or RRSP change these rules. This is general information, not tax advice.
- Is buying stocks a good idea?
- This site does not give investment advice. What we can say is that broad stock markets have historically grown over long periods, but they have also fallen by 50% or more and taken years to recover, and individual companies can go to zero. Understand those risks, and your own timeline, before investing money.
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From the TradingFuse portfolio
What our sister publications are reading right now
How Do Stocks Work? is an education site in the TradingFuse portfolio. The other publications run a daily editorial. Recent notes below; click through for the live tape.
- A plain-English guide to daily yield noise: how far the 5- and 10-year move on an ordinary day, and what a 1 basis point hit can and cannot show
- Mon: the 3-year auction was weak on both measures, cover 2.53 and indirects 55.5 percent, and the 5-year closed 1.1 basis points higher. One hit, and a thin one
- A plain-English guide to payroll revisions: the first, second and third estimates, the 122,000 confidence interval, and why a plan fixes its line on the first print
- Reading a WASDE corn balance sheet: how a 181.2 bushel yield becomes 1,849 million bushels of ending stocks, and what stocks-to-use adds
- Monday Nov 9: corn 4.318, a thirteenth close below the 200-day, Outcome B, and the lowest close since July 14; harvest 81 percent
- Reading net versus gross managed-money positioning: why a net of +8,795 with 229,341 longs and 220,546 shorts is not a flat market
Why this site exists
Education first. No shilling, no hype.
Most stock-market content is selling something: a pick, a broker referral, a course, a "signals" group. This site is a straightforward reference, published openly by TradingFuse, written to be accurate rather than persuasive.
The honest truth, stated up front: markets fall hard and sometimes stay down for years, most people who pick stocks trail the index, and fees quietly compound against you. Understanding how the market works won't change those odds on its own, but investing without understanding it is far worse.
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